Saturday, October 08, 2005


China: A good investment bet?

A lot of money is moving overseas as more people recognize that there will be a financial reckoning for the United States. But are the markets into which it is moving any safer? Business Week has an article on Japan funds reporting that $1.3B moved there in about 6 weeks. It points out that Japan has been about to have a stock market boom ever since the decline and stagnation that began after 1989. In other words, investing in Japan has been a losing proposition forever. But a very interesting article in an odd source reports on why investing in China might not work out. J.-F. Tremblay, reporting in the 9/29 edition of Chemical and Engineering News says that "The severe environmental pollution suffered by the residents of Huaxi, in the city of Dongyang in China's Zhejiang province, led them to combat riot police this April." No deaths, but plenty of damage. In the village of Huang Meng Ying in Henan Province, 118 people out of a population of 2600 have died of cancer since 1990. The culprit may be an MSG plant co-owned by Ajinomoto. The polluters get away with this through the ancient practice of guanxi which has survived emperors, Mao, and now capitalism (though capitalism seems to be monetizing it). Tremblay says that a crackdown could actually benefit the competitors of Chinese plants, since the Chinese plants of foreign companies are less polluting than the native Chinese plants. While China funds have been immensely profitable, an investor needs to ask whether the costs of Deng Xiaoping's "white mice" program are going to be extracted from the shareholders in China funds. China has a long history of nationalistic uprisings. Pollution and slave labor could easily become grievances that lead to another.
And then there's Peak Oil.

If the Chinese think they can continue to modernize their country the way everybody else did, with cheap energy, they are woefully wrong.

I think this problem will become more apparent over the next 10 years or so, and it's possible China might not be able to survive their move to an oil-energy-based economy. Their remarkable economic expansion will not go on for much longer, and now is the wrong time to "get in."

Anyways, that's what I say to myself when I look enviously at the return rates for the Matthews China Fund, which sadly I do not own.
Don't be sad, Shrimplate. As soon as Bush was elected, I knew that the investment world as we had known it was ended. And I thought, "What will do well? Gold, oil, defense stocks, over the long haul land, and-- as he bankrupts the Treasury-- anything foreign."

But when I though of gold, I thought of Bulyanhulu and the wildcat miners buried alive there.

When I thought of oil, I thought of the Exxon Valdez.

When I thought of defense stocks, I thought of the children and their parents maimed and killed.

And when I thought of China, I thought of slave labor, pollution, and so on. Looking at Matthews's holdings, they look pretty decent. A lot of realty stuff, but without the speculative risk.

But there are still many excellent and reasonably socially-conscious investments out there. I don't want to make any specific recommendations, but look at EWZ (+100% since Bush) and BISIX (+50% since Bush) as examples. Not as great as if you bought Matthews in 2000, but good.

For the future, who knows? Chapstick for us to kiss our rear ends goodbye could be as good a bet as new technology to solve the problems Bushco has created.
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